Accidental American Taxes: Compliance & IRS Rules

Imagine living abroad your entire life, never setting foot in the US, only to discover you owe thousands in penalties for unfiled US taxes. This is the reality for many Accidental Americans. In this guide, we’ll look at why you’re subject to US taxes and how you can get compliant without the usual penalties. 

What Is an Accidental American? 

An Accidental American is someone with US citizenship by birth but no real ties to the US. Despite this, the IRS requires them to file US taxes and report foreign income. This often happens if: 

• You were born in the US but left as a child 
• You were born abroad to a US citizen parent 

If you’ve found out you’re an Accidental American, you will have to comply with US tax law to avoid penalties. That means: 

• Filing a US tax return (Form 1040) 
• Reporting your non-US bank accounts (FBAR & FATCA) 

Use IRS amnesty programs to skip the usual fines for non-compliance 

Why Are Accidental Americans Subject to US Taxes? 

Accidental Americans are subject to the same US tax obligations as any other American. Unlike most countries, the US uses citizenship-based taxation. If you’re a U.S. citizen, the U.S. taxes your worldwide income, regardless of where you live or where the money originated. Recently, the IRS has ramped up enforcement under the Foreign Account Tax Compliance Act (FATCA). This includes auditing Accidental Americans with unreported foreign income. 

Myth vs. Reality 

There are numerous myths surrounding US taxation for Accidental Americans. Let’s debunk some of the most common. 

• Myth: “I don’t live in the US, so I don’t owe US taxes.” 
• Reality: If you hold US citizenship, you must file taxes, even if you’ve never lived in the US 

• Myth: “If I ignore US taxes, the IRS won’t come after me.” 
• Reality: The IRS enforces compliance in several ways, including through FATCA (Foreign Account Tax Compliance Act) laws, which require foreign banks to report US citizens’ accounts. 

• Myth: “I will automatically lose US citizenship if I don’t file taxes.” 
• Reality: Citizenship remains unless you formally renounce it and comply with IRS exit tax rules. However, you may lose your passport if you don’t file taxes. 

• Myth: “I have dual citizenship, so I don’t need to file US taxes.” 
• Reality: US law does not recognize dual citizenship for tax purposes. If you are a US citizen, you must file unless you renounce. 

• Myth: “Only wealthy Americans abroad must report foreign bank accounts.” 
• Reality: Anyone with $10,000+ in total foreign accounts must file a Foreign Bank Account Report (FBAR) 

• Myth: “Filing past due taxes means I’ll face massive IRS penalties.” 
• Reality: Many Accidental Americans qualify for the Streamlined Filing Compliance Program, which waives penalties if you file voluntarily. 

Accidental American Tax Obligations 

Accidental Americans face the same tax rules as any US taxpayer. Here are the most common forms you may need to file: 

• IRS Tax Return (Form 1040): This form is required every year, no matter where you live. 
• Foreign Bank Account Report (FBAR): Reports foreign accounts totaling $10,000+ at any point in the year. This is due April 15 or June 15 if you live outside the US and Puerto Rico.  
• FATCA Report (Form 8938): Used to disclose foreign assets above thresholds — e.g., $200,000 for single filers living abroad or $50,000 if living in the US. This is filed with your 1040. 

How to Become Tax Compliant 

The IRS offers the Streamlined Filing Compliance Procedures to help Accidental Americans catch up penalty-free. To qualify, you must: 

• Live outside of the US 
• Have a valid Social Security number or Individual Taxpayer Identification Number (ITIN) 
• Not under an active IRS audit or criminal investigation 
• Certify that your failure to file was non-willful (due to negligence, mistake, or a good faith misunderstanding of the law) 

To use this system, you will submit tax returns for the last three years and file FBARs for the previous six years. For the three years you are filing tax returns, you must have physically been outside of the US for at least 330 days for at least one of those years. If your failure to file was willful, you can use the Voluntary Disclosure Program to inform the IRS, which may reduce (but not erase) penalties. 

If you choose to relinquish your US citizenship, you may have to pay an exit tax to cover your outstanding taxes. Relinquishing citizenship erases future tax liabilities but does not excuse all unpaid liabilities. It may also result in the need to continue filing US tax returns and paying more tax than you would have as a US citizen. Planning such a move is critical, and Greenback can help with every step of the process. 

Comparison of Compliance Options 

Penalties & Risks for Non-Compliance 

Failing to fulfill US tax obligations carries significant risks. Penalties include: 

• Failure to file tax returns: The IRS can seize assets or levy wages, with penalties of 5% monthly (up to 25%) on unpaid taxes. 
• FBAR penalties: Up to $12,500 per year, escalating to $100,000 or 50% of the balance for willful failure. 
• FATCA crackdowns: Banks may freeze your accounts for non-compliance under international agreements. Penalties start at $10,000 per year and can quickly increase. 

How Likely Am I to Be Audited? 

• Have you ever received a notice from the IRS? 
• Have you received a notice from your non-US bank requesting that you provide your US Social Security number or certify your US citizenship status? 
• Do you have foreign accounts with a balance of over $50,000? 
• Have you lived abroad for five or more years without filing? 

If you select any of these boxes, your audit risk increases — act now to mitigate the risk. 

How to Reduce Accidental American Tax Liability 

The IRS provides several options to reduce or erase your US tax bill as an Accidental American. 

• Foreign Earned Income Exclusion (FEIE): This lets you exempt up to $130,000 of your foreign income from US taxation in 2025.  
• Foreign Tax Credits (FTC): This credit offsets U.S. taxes with taxes paid abroad, as claimed on Form 1116. For example, if you paid $10,000 in taxes to another country, you could deduct $10,000 from your US bill. 

Utilizing these tax benefits, many Accidental Americans end up owing little to no U.S. taxes. 

We Have Helped Many Accidental Americans Get Back on Track. We Can Help You, Too!

Several avenues are available to get caught up with US filing obligations without incurring hefty penalties from the IRS. Greenback can help guide you through the process of what works best for you to become compliant with your US taxes. 

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.